Gallagher CEO Kahl Betham: “We’re not doing it for ourselves. We’re self-sufficient."
Gallagher CEO Kahl Betham: “We’re not doing it for ourselves. We’re self-sufficient."
A tech industry lobby group that runs on $11.2 million of public funding has copped it from the Taxpayers’ Union.
Some of the New Zealand tech industry’s biggest names have sent a letter to Technology Minister Judith Collins as the taxpayer-funded initiative to boost the cloud software sector is about to expire.
They include executives at Xero, Datacom (the largest home-grown IT services firm, with 6500 staff), Gallagher (which had its genesis in electric fencing but now sells cloud software for managing farms) and many rising software firms.
All are members of KiwiSaaS, a group formed in 2021 that gained $11.2m in funding from the previous Government. (SaaS stands for software-as-a-service, or “cloud” software that runs over the internet.)
“A special interest group calling for corporate welfare isn’t exactly news, but Judith Collins needs to hold firm and not cave in to crony capitalism,” James Ross of the Taxpayers’ Union said.
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“Governments shouldn’t be using taxpayers’ money trying to pick winners or propping up fashionable industries like SaaS with handouts.”
Technology Minister Judith Collins is in demand for meetings with executives at Xero and other cloud software firms as the expiry of funding for a key initiative looms on June 30.
The Herald asked Gallagher chief executive Kahl Betham why KiwiSaaS members such as his firm (which has annual revenue of just under $400m), Xero ($1.4 billion) and Datacom ($1.5b) could not fund KiwiSaaS themselves.
For the economy to grow, there had to be a focus on up-and-coming companies, which account for the bulk of the KiwiSaaS community (which totals 3768 members across 605 companies).
“It’s the ones in the $20m to $100m zone that need to grow. New Zealand needs a lot more of Gallagher and Datacoms. At $400m, we shouldn’t be the fifth-largest tech exporter.”
Collins had set a goal to double tech exports, which stood at $13.05b last year, by 2030. SaaS products would be a key part of meeting or exceeding that goal.
“Software exports are weightless. It costs nothing to ship them,” Betham said.
“Tech exports are really important for New Zealand, second only to dairy, but not many people know it.”
However, there was still room for improvement. “$13b is good, but $40b would be better,” Betham said.
Tech could be the antidote for New Zealand’s debt, productivity and infrastructure challenges. “So yeah, we’ll be advocating all day about what we can all do to help accelerate tech exports.”
‘Time is against us’
KiwiSaaS has six full-time, Government-paid staff who drive training efforts for its members, who collectively generated close to $3b of the tech sector’s overall $13b export receipts last year.
The group’s leaders say in their letter that they want to meet Collins “to help inform and collaborate on the Government’s future plans for the SaaS sector, to maintain the incredible momentum the sector has achieved”.
They add: “We know time is against us with the current support for KiwiSaaS ending June 30.”
The Herald understands the letter was sent on April 8.
As of late this week, a reply had not been received from Collins, her staff or any Government agency, according to a KiwiSaaS insider.
He said he feared KiwiSaaS could become “collateral damage” in the Government’s broad-strokes cost-cutting efforts, “when this is exactly the sort of thing they need to be doing to boost productivity and exports”. The average salary in the sector was $105,000, he said.
Bruce Jarvis, head of the KiwiSaaS community and one of its six full-timers, said the industry’s growth was fueled by only about 10 per cent of its members, who were in high-growth phases. The others were in scale-up phases and needed a boost.
“That’s where we come in,” Jarvis said. He and his team run workshops, conferences, online Q&As and a “matching-making” service to help industry players connect.
KiwiSaaS letter signatories
Gallagher NZ CEO Kahl Betham
Gallagher Animal Management CEO Lisbeth Jacob
Xero NZ country manager Bridget Snelling
Datacom MD of SaaS Solutions Peter Nelson
Ex-Pushpay chairman and CEO Bruce Gordon
AskNicely founder Aaron Ward
Serko co-founder and CEO Darrin Grafton
CIN7 CEO David Leach
Parallo CEO and co-founder Symon Turlow
Parkable co-founder and CEO Toby Litton
LawVu cofounder and CEO Sam Kidd
Although the sector has faced challenges over the past year, with hefty layoffs at Xero, online retail specialist CIN7 and others, the letter detailed stats on the sector’s overall growth.
“As of 2022, NZ’s SaaS sector generated $2.9b of largely export revenue and has seen year-on-year growth of 15 per cent since 2016. At this continued growth rate, by 2032 the SaaS sector will have quadrupled in size – it will be generating an additional $9b in revenue (or $12b in total), and an additional 50,000 high-paying jobs,” the letter said.
A spokesman for Collins said she could not immediately comment because she was travelling. Collins, who also holds the Defence portfolio, was set to attend Anzac Day commemorations in Belgium after an OECD conference in Paris this week. Her spokesman could not immediately confirm whether she had responded to the KiwiSaaS letter.
Not mutually exclusive
The Taxpayers’ Union also said this morning: “If the Government wants to put a rocket under New Zealand businesses, then the tried-and-true way to do that is just getting out of their way. Cut red tape and deliver businesses tax relief across the board. For SaaS companies, introducing full-expensing would be a far better way to foster investment and growth than government subsidies.”
The tech industry has been also pushing for more favourable tax rules. So far, Collins has largely kept her power dry. Betham said he would reserve judgment until the May 30 Budget. From discussions so far, he saw the Government as “very receptive” to ideas to boost tech exports.
Collins is expected to unveil initiatives in the Budget. But she warned on the campaign trail that funds would be tight. Of dozens of ideas put forward in a Startup Council report last year, she would commit to only one: more tech visas.
However, she promised to assess the viability of a second: tax changes that would make employee stock ownership plans (or esops, sometimes used by cash-strapped early-stage companies as a way of luring or keeping staff) more favourable.
A second letter
Collins has also been sent an open letter this month by Phoebe Harrop, a partner at Australasian venture capital firm Blackbird Ventures.
The previous Government tipped $300m into the Elevate venture capital fund, which co-invested in start-ups, along with firms such as Blackbird. But as the fund ran dry, Labour made no commitment to topping it up.
In her letter, Harrop called on Collins, Finance Minister Nicola Willis and Economic Development Minister Melissa Lee to provide a further $500m for Elevate.
The Startup Council earlier called for Elevate to be renewed with $500m in new funding. On the campaign trail, Collins said her party would assess the viability of an Elevate top-up with Budget 2024 – but she also flagged that it could be challenging amid tight fiscal constraints.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
